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The Development Of Money

Barter was an extremely clumsy, highly inefficient, wasteful and inconvenient method of exchange. It was to overcome the difficulties of barter that virtually every society invented some kind of money early in its development. It was certainly one of the most fundamental inventions of the entire history of mankind, because “in economics, in the whole commercial side of man’s social existence money is the essential invention on which all the rest is based” It would, however, be a great mistake to presume that money was discovered and introduced overnight. Like certain other essential elements in civilization, it developed through several centuries and passed through several phases.

Money is by no means a recent invention. The origin of money is deep rooted in antiquity. It is clearly as old as recorded history, but its nature and form have been changing with every change in the form and level of industrial life. The history of money reveals that a bewildering variety of commodities and other “things” has been used as money at different times and at different places.

“About the only characteristic that all these things had in common was that each was able at some time or place to achieve general acceptability in payments. And the reasons for this general acceptability certainly varied from place to place and from time to time.

Early primitive money took the form of commodity money,. Historically, a great variety of commodities has served at one time or another as money. Cattle (from which comes the Latin stem of “pecuniary” and also the words “Capital” and “Chattel”), leather and hides, furs, olive oil, bear or wine, corn, tobacco, salt, wampum beads or shells, slaves, stones and so many other things. The index of a well known book on primitive money lists 172 objects and materials which have been used as money, ranging alphabetically from adzes to yarn.

As the economic life developed from the pastoral to the commercial stage, commodity money changed into metallic money. Gold, silver, copper, iron, lead and bronze were used by weight as medium of exchange. Gold and silver, in due course, came to the recognized as universal and natural money. Minting of full bodied coins started at a later stage.

Abstract money in the form of paper currency and bank deposits together with some coins of less than full weight, is the modern system which came into existence largely during the depression of 1930s. The wide variety of acceptable monetary substances, past and present, and the continuous gradual change in the composition of money within the society suggests that there is no such thing as “natural” money appropriate to all times and places.

In any society money is an institution which must be consustent with other social usages and which may arise spontaneously from such usages. Probably the most striking fact that one learns in studying the long history of money is that there has been a close parallel between the development of money and the development of commerce and capitalism. Historically, it is proved that money can exist without commerce, but commerce tends to create its money. In the twentieth century, however, spontaneous evolution has been evident than deliberate government manipulation. The widespread use of bank deposits as a medium of transactions in the present day economics has led to considerable misunderstanding of how the total quantity of money is determined. The present day monetary system has ceased to be so simple readily comprehensible as it was a few decades ago.

“Money began as a commodity and has ended as a system of recording transcations and bringing every act of purchase and sale, of borrowing and lending, of working and producing at any time, into some degree of relation with every other such act”